Search results

This study empirically examined how prevalent earnings management practices are among Korean firms during the period 1994 and 1997. Specifically, this study focuses on the use of controllable non‐operating items as tools of earnings management when they face unwanted operating performances caused by uncontrollable non‐operating items. We expect that firms with extreme operating and/or non‐operating performances will utilize controllable non‐operating real transaction accruals to offset or mitigate extreme performance.

Charting the earnings numbers reported by Korean firms produces a bell curve, but for a sharp discontinuity in the area surrounding zero. The purpose of this paper is to investigate if and how a large segment of Korean managers might manage accounting numbers to produce the observed result.

This study adopts an empirical research method using Korean listed firms as a sample. The primary focus of investigation is on major income statement variables that might produce the observed results in earnings from operations and net income.

Managers of Korean firms opportunistically use almost all income statement variables to influence earnings numbers. They manage revenues and selling, general & administrative expenses to report small positive earnings from operations, but manage non-operating gains (losses) to report small positive net income.

This paper does not answer several questions related to loss avoidance. First, the paper did not examine which actions, such as discretionary accruals, opportunistic business decisions, or bogus transactions, were employed to affect line items on the income statement. Second, the paper did not investigate what specific incentives trigger Korean managers to report small positive earnings. Korean firms have traditionally raised capital by borrowing funds from creditors and governmental agencies. Thus, they may be concerned that reporting losses would reduce their borrowing capacity. Finally, corporate governance, such as CEO tenure and option grants may influence the extent of earnings management to avoid losses, but most corporate governance data for Korean companies must be manually collected. Accordingly, these subjects are left for future studies as well.

This study contributes to accounting literature by reporting how managers of Korean firms artificially coordinate major income statement variables and report small positive earnings figures, noting the differences between earnings management investigating methodology and ones used in previous studies.

The ability of financial statement users, investors, donors and academic researchers to compare financial information issued by nonprofit universities, hospitals, fund-raising organizations and government agencies is affected by their understanding of current accounting recognition and reporting guidance. Public nonprofit organizations report different financial results from private nonprofit organizations. This study looks at the events that brought about the divergence in nonprofit financial accounting recognition and reporting for higher education institutions, discusses specific differences, and offers a look at additional changes in recognition and reporting for the sector currently underway.

Accounts manipulation has been the subject of research, discussion and even controversy in several countries including the USA, Canada, the U.K., Australia, Finland and France. The objective of this paper is to provide a comprehensive review of the literature and propose a conceptual framework for accounts manipulation. This framework is based on the possibility of wealth transfer between the different stake‐holders, and in practice, the target of the manipulation appears generally to be the earnings per share and the debt/equity ratio. The paper also describes the different actors involved and their potential gains and losses. We review the literature on the various techniques of accounts manipulation: earnings management, income smoothing, big bath accounting, creative accounting, and window‐dressing. The various definitions of all these, the main motivations behind their application and the research methodologies used are all examined. This study reveals that all the above techniques have common elements, but there are also important differences between them.

This study explores the relationship between firm value and conforming tax avoidance (tax avoidance that does not create a book-tax difference). Tax avoidance provides firms with more cash and creates value. However, conforming tax avoidance has costs, such as lower book income, and these costs potentially lower firm value. As such, it is unclear whether conforming tax avoidance is positively or negatively correlated with firm value. We use a measure of conforming tax avoidance that was recently introduced in the literature, and bifurcate tax avoidance into conforming and nonconforming portions using a large sample. We present evidence that investors place a negative value on conforming tax avoidance for the average firm. We also examine the top quartile based on the measure of conforming tax avoidance and find a positive correlation between firm value and conforming tax avoidance for this subsample.

The purpose of this paper is to explain the Regulated Investment Company Modernization Act of 2010, P.L. 111‐325, signed into law on December 22, 2010.

The paper summarizes the Act and provides a detailed explanation and analysis of each of the provisions in the Act.

An investment company registered under the Investment Company Act of 1940 may elect to be taxed as a Regulated Investment Company (RIC) under the Internal Revenue Code. A RIC that satisfies certain additional minimum distribution requirements is generally allowed to deduct the amount of dividends paid to its shareholders in computing the RIC's taxable income and gains, with the result that the RIC's distributed net income and gains can be passed through to its shareholders free of tax at the RIC level. The Act makes a number of changes to the provisions in the Code related to RICs.

The paper provides practical guidance from experienced financial services lawyers.

We examine why Cash ETRs of US domestic firms have decreased over time. Using samples from two periods – an early period (1994–1998) and a late period (2011–2015) – we regress Cash ETRs in each period on a set of explanatory variables, and allow coefficients to differ across time periods. We find that, when coefficients are allowed to differ, there is no longer a decline in the unexplained portion of Cash ETR across the two periods, and that the previously observed decline is associated with a change in the relation between firm size and Cash ETR between the two periods. Further analysis suggests that the coefficient on firm size has been declining over the past 20 years, and that controlling for this time trend alone is sufficient to explain the declining trend in Cash ETRs for domestic firms.

This paper examines the role of professional associations, governmental agencies, and international accounting and auditing bodies in promulgating standards to deter and detect fraud, domestically and abroad. Specifically, it focuses on the role played by the US Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), the Institute of Internal Auditors (IIA), the Institute of Management Accountants (IMA), the Association of Certified Fraud Examiners (ACFE), the US Government Accounting Office (GAO), and other national and foreign professional associations, in promulgating auditing standards and procedures to prevent fraud in financial statements and other white‐collar crimes. It also examines several fraud cases and the impact of management and employee fraud on the various business sectors such as insurance, banking, health care, and manufacturing, as well as the role of management, the boards of directors, the audit committees, auditors, and fraud examiners and their liability in the fraud prevention and investigation.

The case study highlights two strategic angles – that of the business unit (business strategy, profitability, market leadership. organizational culture, operational turnaround, industry structure and competitive dynamics) and the owner (returns, repositioning strategy and funding plan). By the end of this case study, students would be able to understand the changing competitive forces of a dynamic industry; analyse the circumstances leading to a change in the control of a firm from the state to the private sector; understand the logic of acquiring a perennially loss-making firm operating in a volatile environment without a unique strategy; identify a firm’s strategic and operational choices for financial turnaround, return to profitability and regaining market leadership; and learn about the actual strategic realities and choices confronting a troubled business organization in a difficult industry.

When the Tata Group took over Air India on 27 January 2022 from the state that had ownership for 68 years, Air India was under a long spell of poor performance, bleeding losses and unmanageable levels of debt. Unsatisfactory customer service, management issues and competition were the key reasons. Therefore, a crucial question facing the group’s Chairman N. Chandrasekaran was what workable strategy he could use to reposition Air India and make it profitable again so as to recover the $7.5bn of estimated investment involved in the acquisition and turnaround.

This case study is intended for undergraduate and graduate executive education levels in business administration and management and allied subjects, particularly for courses in strategic management, marketing, financial management, turnaround and transformation, mergers and acquisitions and organizational change.

Teaching notes are available for educators only.

CSS 11: Strategy.